Operations Management Chapter 8: Location Strategies

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Questions and Answers

Which of the following is NOT a reason why location decisions are strategically important for a firm?

They have a negligible effect on fixed costs. (correct)

They involve long-term commitments.

They greatly impact variable costs.

They are made with minimal frequency.

What is one of the primary benefits of the central hub concept for companies like FedEx?

Decreases control over package transit.

Increases the number of aircraft required.

Reduces mishandling and delays in transit. (correct)

Enhances dependence on third-party carriers.

What method can be used to assess the profitability of a location decision graphically?

Productivity analysis.

Factor-rating method.

Center-of-gravity method.

Locational break-even analysis. (correct)

Which of the following options is most aligned with maximizing the benefit of location for a firm?

Expanding existing facilities for growth. (D) Signup and view all the answers

Which of the following factors is least likely to influence location decisions?

Employee preferences for local amenities. (D) Signup and view all the answers

Which factor is NOT identified as a key success factor in location decisions?

Employee satisfaction rates (A) Signup and view all the answers

What role does globalization play in location decisions?

It complicates location decisions due to multiple drivers. (C) Signup and view all the answers

Which of the following is a factor in site decision considerations?

Environmental impact issues (A) Signup and view all the answers

What is the consequence of location-related costs once a facility is established?

They are difficult to reduce and fixed in place. (B) Signup and view all the answers

Which of the following is a driver of globalization that affects location decisions?

Ease of capital flow (D) Signup and view all the answers

Which key success factor relates specifically to the community aspect of location decisions?

Attractiveness of region (B) Signup and view all the answers

Which factor would likely NOT be considered when making country-level location decisions?

Site size and cost (C) Signup and view all the answers

Which country was ranked the highest in the Global Competitiveness Index of 2015?

Switzerland (B) Signup and view all the answers

Which of the following countries was ranked just above Mexico in the Global Competitiveness Index of 2015?

Vietnam (C) Signup and view all the answers

What was the labor cost per unit for South Carolina based on the given productivity?

$1.17 per unit (A) Signup and view all the answers

What type of costs includes factors like education and quality of life?

Intangible costs (C) Signup and view all the answers

Which of the following factors is NOT considered a tangible cost?

Community development (A) Signup and view all the answers

Which country had a productivity of 60 units per day?

South Carolina (B) Signup and view all the answers

What can significantly impact costs due to changes over time?

Exchange rates (A) Signup and view all the answers

Which of the following countries was ranked immediately below the United States in the Global Competitiveness Index?

Japan (C) Signup and view all the answers

Which of the following is NOT a factor mentioned that affects location decisions?

Corporate tax rates (C) Signup and view all the answers

What is a common consequence of making location decisions based solely on costs?

Creation of ethical dilemmas (D) Signup and view all the answers

Which factor may influence worker attitudes towards turnover?

All of the above (D) Signup and view all the answers

In what situation is proximity to markets particularly crucial?

For service industries (A) Signup and view all the answers

What drives the concept of clustering in industries?

Availability of critical resources (C) Signup and view all the answers

Which of the following locations is associated with the clustering of software firms?

Silicon Valley (A) Signup and view all the answers

Which industry is likely to cluster due to natural resources?

Wine making (C) Signup and view all the answers

What is an essential consideration when determining location for perishable goods?

High transportation costs (C) Signup and view all the answers

Which of these attitudes may vary significantly across different cultures?

Punctuality (A) Signup and view all the answers

Study Notes

Operations Management: Sustainability and Supply Chain Management - Chapter 8 Location Strategies

Location decisions are crucial for firms, significantly impacting fixed and variable costs. These decisions are often made infrequently and are long-term commitments.
Location decisions are increasingly global in nature.
Location strategy aims to maximize the benefits for the firm. Options include expanding existing facilities, adding sites, closing existing ones and relocating.
Location decisions require thorough consideration, as location-related costs become fixed post-implementation.
Globalization's impact on location involves factors like market economics, communication, rapid reliable transportation, capital flows, and differing labor costs.
Key Success Factors (KSFs) for location decisions include political risks, government policies and attitudes, cultural and economic issues, market location, labor quality and costs, supply availability, communication and energy, and currency risks. Region-specific factors can include corporate desires, region attractiveness, labor availability, utility costs, environmental regulations, government incentives, proximity to raw materials and customers, and construction costs. Site-specific factors encompass site size and cost, access to transportation systems, zoning restrictions, and proximity to services/supplies. Environmental impact and demographic characteristics are also critical.
Labor productivity is not exclusively determined by wage rates; lower productivity can often increase total costs. Labor cost per unit can be calculated as (Labor cost per day) / (Productivity (Units per day)).
Exchange rates and currency risks can significantly impact costs. Both tangible costs (like utilities, labor, and taxes) and intangible costs (like education, quality of life, and community) influence location decisions.
Political risk, values, and cultural factors also affect location decisions. These include government attitudes toward private property and intellectual property, labor issues, absenteeism, and varying global attitudes toward punctuality, legal, and ethical issues.
Proximity to markets and suppliers affects location decisions. JIT systems and high transportation costs can affect manufacturer choices. Perishable and bulky goods are strongly affected by transportation costs.
Clustering of companies, often driven by resources like natural resources, information, capital access, and talent, affects the location decisions of both manufacturing and service industries.
Geographic Information Systems (GIS) is an important tool for location analysis. GIS enables complex demographic insights and provides data across utilities, geography, and locations of major services.
The factor-rating method helps evaluate various location options, assessing key success factors through weighted scores.
Locational cost-volume analysis involves comparing location alternatives based on fixed and variable costs for expected production volumes. Break-even points can be calculated to determine where costs are equal between locations.
The center-of-gravity method optimizes a distribution center's location to minimize distribution costs by considering market locations, volumes of goods shipped to those markets, and related transportation costs.
Transportation models minimize total production and shipping costs from various supply points to demand points.
Hotel chains use regression models to predict profitability, finding that variables such as price of inn, average income levels, population per inn and location of near colleges provide useful insights.

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Description

Explore the key concepts of location strategies in operations management. This chapter discusses the importance of location decisions, their long-term impact on costs, and the global nature of these choices. Understand the various factors that influence effective location strategies and the significance of political, cultural, and economic considerations.